MERCANTILE LAW

Session 6 Law of Contract Legality of Object & Consideration and Void agreements Instructor: Malik Nizar Ali

Void Agreements (2g)

A Void agreement is an agreement which is not enforceable by law.

Business Law: Legality of Object & Consideration, void agreements

Void Agreements
Agreements by parties incompetent to contract (Sec. 10 & 11) Agreement having bilateral mistake of fact (Sec. 20) Agreements, the consideration or object of which is unlawful (Sec. 23 & 24) Agreements without consideration (Sec. 25) Agreements in restraint of trade (Sec. 27) Agreements in restraint of marriage (Sec. 26) Uncertain agreements (Sec. 29) Agreements in restraint of legal proceedings (Sec. 28) Wagering agreements (Sec.30) Agreement contingent on impossible events (sec. 36) Agreements to do impossible acts (Sec.56)

Business Law: Legality of Object & Consideration, void agreements

Agreements by parties incompetent to contract (Sec. 10 & 11)

Minor

Incompetent

Unsound mind

Disqualified

by law

Business Law: Legality of Object & Consideration, void agreements

Agreement having bilateral mistake of fact (Sec. 20)

Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

Business Law: Legality of Object & Consideration, void agreements

Agreements, the consideration or object of which is unlawful (Sec. 23)

Forbidden by law Defeats the Provision of any law Fraudulent Involves injury to the person or property of another Court regards it as Immoral or opposed to Public policy
Business Law: Legality of Object & Consideration, void agreements

Considerations or objects unlawful in part (Sec. 24)

Void i) if any part of a single consideration for one or more objects is unlawful or ii) if any one or any part of any one of several considerations for a single object is unlawful
Business Law: Legality of Object & Consideration, void agreements

Agreements Opposed to Public policy

Alien Enemy Stifling Prosecution Maintenance (litigation in which one has no interest of ones own) & Champerty (bargain whereby one party is to assist other in recovering property, and is to share in the proceed of the action) Sale/ Transfer of Public Offices & Titles Restraint of Parental Rights Restraint of Personal Liberty To create Monopoly Interfering with Course of Justice Marriage Brokerage Contracts Restraint of marriage, trade and legal proceedings

Business Law: Legality of Object & Consideration, void agreements

Agreements without consideration (Sec. 25)

Void unless 1) in writing & registered 2) or is a promise to compensate for something done 3) or is a promise to pay a debt, barred by Limitation Law

Business Law: Legality of Object & Consideration, void agreements

Agreements in restraint of trade (Sec. 27)

Agreement is void to that extent if any one is restrained from exercising a lawful profession, trade or business of any kind.

Business Law: Legality of Object & Consideration, void agreements

Onus of Proof
Defendant-Restraint is necessary to protect his interest Plaintiff- Restrain is injurious to the public

Business Law: Legality of Object & Consideration, void agreements

Exceptions to the rule that an agreement in restraint of trade is void

Exceptions

Statutory

Judicial

Sale of Goodwill

Partners agreement

Trade combination

Sole dealing agreements

Service agreements

Business Law: Legality of Object & Consideration, void agreements

Service Agreements
Clause 1. to serve employer for stipulated period 2. to prevent employee to accept any other engagement during his employment 3. to accept similar engagement after separation from services in order to protect employer from use of trade secrets acquired by employee in course employment
Business Law: Legality of Object & Consideration, void agreements

Sale of Goodwill
Similar business

Reasonable

Sale of Goodwill

Time limit

local limits

Business Law: Legality of Object & Consideration, void agreements

Partners Agreement
Restriction on existing partner- Sec 11(2) Restriction on outgoing partner-Sec.36 (2) Restriction on partner upon or in anticipation of dissolution of firm-Sec 54 Restriction in case of sale of goodwill- Sec 55(3)

Business Law: Legality of Object & Consideration, void agreements

Agreements in restraint of marriage (Sec. 26)

Void other than a minor

Business Law: Legality of Object & Consideration, void agreements

Agreements in restraint of legal proceedings (Sec. 28)

Void 1) if any party is restricted absolutely from enforcing his rights by usual legal proceedings in the ordinary tribunals 2) or which limit the time within which he may enforce his rights Exception Refer to arbitration dispute that (1)may arise or (2) question that have already arisen
Business Law: Legality of Object & Consideration, void agreements

Uncertain agreements (Sec. 29)

Void if the meaning of which is not certain or capable of being made certain

Business Law: Legality of Object & Consideration, void agreements

Agreements to do impossible acts (Sec.56)

Void if doing that act is impossible in itself if contract to do act afterwards becoming impossible. Promiser must compensate promisee for any loss sustained on account of non performance of promise. Where promiser knew or with reasonable diligence that act is impossible or unlawful and promisee did not know that to be impossible/ unlawful.
Business Law: Legality of Object & Consideration, void agreements

Wagering agreements (Sec.30)

Essential elements of a wagering agreement 1) Promise to pay money or money worth 2) Uncertain event 3) Mutual chance of gain or loss 4) Neither party have control over the event 5) No interest in the event

Business Law: Legality of Object & Consideration, void agreements

Transactions which are not wagering

Prize competitions which are game of skill Subscription, or contribution, towards any plate, prize or sum of money, of the value or amount of Rs. 500 or upwards, to be awarded to the winner(s) of any horse-race. Contract of insurance Share market transactions in which delivery of shares is intended to be given and taken.

Business Law: Legality of Object & Consideration, void agreements

Distinction between contracts of Insurance & Wagering

Contract of Insurance Insurable interest Amount may vary Wagering agreement No insurable interest Amount is usually fixed

Beneficial to public policy Involve element of investment & protection

Against public policy

Chance oriented and therefore is gambling

Business Law: Legality of Object & Consideration, void agreements

Agreement contingent on impossible events (sec. 36)

Void contingent agreement to do or not to do anything if an impossible event happens whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.
Business Law: Legality of Object & Consideration, void agreements

Contingent Contract (Sec. 31)

Contract to do or not to do some thing If some event, collateral to such contract. Does or does not happens. Essential Elements 1. Dependence on future event 2. Collateral event 3. Uncertain event
Business Law: Legality of Object & Consideration, void agreements